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Schumpeter's Paradox

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The 18th century embraced the idea of progress, in the 19th it was evolution, the 20th century gave us growth, and now the catch-phrase is innovation. Innovation is held out as the key to success. Public policy goals require innovative solutions. Smartphone apps provide innovative approaches to finance, health, diet, education, and even relationships.

Firms are told to “innovate or die.” The expectation is that if a firm doesn’t continually upgrade its products and processes, someone else will. If the company can’t compete with the new concept, it will fail. Many long-haul trucking companies have shut their doors because they didn’t embrace intermodal shipping. IBM is another example: it’s Selectric typewriters were dominant in the ‘70s, but they became obsolete when PCs arrived on the scene. IBM had the foresight to embrace the new technology and became a leading PC-maker.

But for every PC there are dozens of New Cokes—changes for changes’ sake, that upset an otherwise sound business. People sometimes lose perspective when something new shows up, and become evangelists for a novel solution to a problem that isn’t really a problem.

Consumers love new things, but they also like what works. The future is uncertain. Sometimes firms do need to innovate or die. But sometimes they die precisely because they innovated.